6th SEM (MBA-EVENING|APRIL 2016)

DBIM|SURAT

Current status of
NPA
in Indian Banks

SUBMITTED TO:

SUBMITTED BY:

DR. NAMRATA KHATRI

VARUN DHINGRA
KAMLESH DOBARIYA

Table of Contents
Introduction:..........................................................................................2
Meaning Non-Performing Assets (NPA):...................................................3
Definitions of Non-Performing Assets:..................................................3
Types of NPAs:.....................................................................................4
Asset Classification:.............................................................................4
Factors Responsible For NPAs:................................................................6
Initiatives taken by the government:.......................................................7
The NPA roll call: Too big to name...........................................................8
NPA as on 31-3-2015.............................................................................14
1.

Combine Chart for all the banks:....................................................................14

2.

Graph for SBI and Associates:.........................................................................15

3.

Status of Nationalized banks:..........................................................................16

4.

Status of Private sector banks:.......................................................................17

5.

Status of Foreign Banks:................................................................................. 18

Introduction:

Banking essentially involves intermediation - acceptance of deposits and grants the loans and
advances. Since the deposits received from the depositors have to be repaid to them by the bank,
they are known as banks Liabilities and as the loan given to the borrowers are to be received
back from them, they are termed as banks Assets so assets are banks loans and advances.
In the traditional banking business of lending financed by deposits from customers, Commercial
Banks are faced with the risk of default by the borrower in the payment of either principal or
interest. This risk in banking parlance is termed as Credit Risk and accounts where payment of
interest and /or repayment of principal are not forthcoming are treated as Non-Performing Assets,
as per the Reserve Bank of India, an asset, including a leased asset, becomes non-Performing
when it ceases to generate income for the bank. Existence of Non-Performing Asset is an integral
part of banking and every bank has some Non-Performing Assets in its advance portfolio.
NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large
number of credit defaults that affect the profitability and net-worth of banks and also erodes the
value of the asset. The NPA growth involves the necessity of provisions, which reduces the
overall profits and shareholders value. The issue of Non Performing Assets has been discussed at
length for financial system all over the world. The problem of NPAs is not only affecting the
banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a
reflection of the state of health of the industry and trade.

Meaning Non-Performing Assets (NPA):

Non-Performing Assets are popularly known as NPA. Commercial Banks assets are of various
types. All those assets which generate periodical income are called as Performing Assets (PA).
While all those assets which do not generate periodical income are called as Non-Performing
Assets (NPA).
If the customers do not repay principal amount and interest for a certain period of time then such
loans become non-performing assets (NPA). Thus non-performing assets are basically
nonperforming loans. In India, the time frame given for classifying the asset as NPA is 180 days
as compared to 45 days to 90 days of international norms.

Definitions of Non-Performing Assets:

1. An asset, including a leased asset, becomes non performing when it ceases to generate
income for the bank.
2. A non-performing asset (NPA) is a loan or an advance where;
i.
interest and/ or installment of principal remain overdue for a period of more than 90
ii.

days in respect of a term loan,

The account remains out of order for more than 90 days in respect of an

iii.

Overdraft/Cash Credit (OD/CC);

The bill remains overdue for a period of more than 90 days in the case of bills

iv.

purchased and discounted,

The installment of principal or interest thereon remains overdue for two crop seasons

v.

for short duration crops,

The installment of principal or interest thereon remains overdue for one crop season

vi.

for long duration crops,

The amount of liquidity facility remains outstanding for more than 90 days, in respect
of a securitization transaction undertaken in terms of guidelines on securitization

vii.

dated February 1, 2006.

in respect of derivative transactions, the overdue receivables representing positive
mark to market value of a derivative contract, if these remain unpaid for a period of

90 days from the specified due date for payment.

3. In case of interest payments, banks should, classify an account as NPA only if the interest due
and charged during any quarter is not serviced fully within 90 days from the end of the
quarter.

Types of NPAs:
The NPAs can broadly be classified into (i) Gross NPAs, (ii) Net NPAs.
i.

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI
guidelines as on balance sheet date. It reflects the quality of loans made by banks. (Gross
NPAs Ratio = Gross NPAs/Gross Advances).

ii.

Net NPAs are those type of NPAs in which the banks deduct the provisions regarding
NPAs. It shows the actual burden of banks (Net NPAs = Gross NPAs-Provision/Gross
Advances-Provisions).

Asset Classification:
NPA have been divided or classified into following four types:1. Standard Assets: A standard asset is a performing asset. Standard assets generate continuous
income and repayments as and when they fall due. Such assets carry a normal risk and are
not NPA in the real sense. So, no special provisions are required for Standard Assets.
2. Sub-Standard Assets: All those assets (loans and advances) which are considered as nonperforming less than or equal to 12 months are called as Sub-Standard assets.
3. Doubtful Assets: All those assets which are considered as non-performing for period of more
than 12 months are called as Doubtful Assets.
4. Loss Assets: All those assets which cannot be recovered are called as Loss Assets.

Factors Responsible For NPAs:

The following factors confronting the borrowers are responsible for incidence of NPAs in the
banks:1. Diversion of funds for expansion/modernization/setting up new projects/helping
promoting sister concerns.
2. Time/cost overrun while implementing projects.
3. External factors like raw-material shortage, raw-material/Input price escalation, power
shortage, industrial recession, excess capacity, natural calamities like floods, accident etc.
4. Business failure like product failing to capture market, inefficient management,
strike/strained labour relations, wrong technology, technical problem, product
obsolescence, etc.
5. Failure, non-payment/over dues in other countries, recession in other countries,
externalization problems, adverse exchange rate, etc.
6. Government policies like excise, import duty changes, deregulation, and pollution control
orders, etc.
7. Willful default, siphoning of funds, fraud, misappropriation, and promoters/management
disputes etc.
Besides above, factors such as deficiencies on the part of the banks viz. deficiencies in credit
appraisal, monitoring and follow-up; delay in release of limits; delay in settlement of
payments/subsidies by Government bodies, etc. are also attributed for the incidence of NPAs.

Initiatives taken by the government:

Some recent initiatives taken by the government to address the rising NPAs include:-

 Appointment of nodal officers in banks for recovery at their head offices/zonal offices/for
each Debts Recovery Tribunal (DRT).
Thrust on recovery of loss assets by banks and designating asset reconstruction companies
(ARC) resolution agents of banks.
Directing the state-level bankers committees to be proactive in resolving issues with the state
governments.
Sanction of fresh loans on the basis of information sharing amongst banks. Conducting sector
/ activity-wise analysis of NPAs.
Close watch on NPAs by picking up early warning signals and ensuring timely corrective
steps by banks including early detection of sign of distress, amendments in recovery laws,
and strengthening of credit appraisal and post credit monitoring.

The NPA roll call: Too big to name

Some PSBs in 2011 had undertaken the name and shame route to deal with small borrowers, but
when it comes to big ticket borrowers, they appear avoiding it, citing various reasons.

According to RBI estimates, the top 30 loan defaulters currently account for one third of the total
gross NPAs of PSBs.
Just a little over four years back, when the initial rumblings of the raging bad loan saga was just
beginning to surface, public sector lenders such as the State Bank of India and Corporation Bank
tried out a novel exercise of carrying prominently placed advertisement in daily newspapers
with photographs of individual defaulters alongside a stern warning that if they failed to respond,
photographs of their guarantors would also be published.
One of the SBI ads in August 2011, for instance, had the photograph of a woman who contracted
a personal loan of Rs 80,000, of which Rs 52,264 was outstanding; Even though the lady was
listed only as a defaulter and not willful defaulter. Corporation Bank went to the extent of
displaying photographs of defaulters on hoardings in order to put them to shame, including a
number of smalltime businessmen affected by the turbulence in the wake of the 2008 global
financial meltdown.

Fast forward five years to now, when nonperforming asset (NPA) disclosures have precipitated
and are simply mounting by the day, there seems to be a discernible resistance among banks in
declaring the details of their biggest defaulters. Between the year when the banks first came out
with their series of ads to shame defaulters, and now, the difference clearly lies in the profile of
the defaulters mostly individuals and small businessmen then as compared to write-offs
involving larger corporate borrowers that are surfacing now.
The issue could be pertinent as the looming NPA scare for banks now is precisely on account of
the surge in big-ticket loans that are facing stress. According to RBI estimates, the top 30 loan
defaulters currently account for one third of the total gross NPAs of PSBs. Till March 31, 2015,
the countrys top five PSBs had outstanding of Rs 4.87 lakh crore to just 44 borrowers, if
borrowers were to be categorized in terms of those having outstandings of over Rs 5,000 crore
(see chart). Even a single default could stress the bank balance sheets, much more than the
cumulative impact of the cases involving small businesses or the lady featured in the SBI
advertisement with an outstanding of Rs 52,264. This time, though, there are no names out, let
alone pictures in newspapers.

Sectoral outstanding of PSBs to the corporate sector are clearly growing. Cumulatively, as on
March 2015, the outstanding loans of PSBs to the agriculture and corporate sectors was Rs 6.83
lakh crore and Rs 27.71 lakh crore, respectively, sharply higher than Rs 4.72 lakh crore and Rs
21.60 lakh crore three years earlier.

The position on declaration of NPAs is even more precarious. For 30 of the 39 listed banks that
have reported third quarter earnings till Friday, gross NPAs have risen 26 per cent between the
September and the December quarters. Provisions have jumped 74 per cent while aggregate net
profit has plummeted 42 per cent. The trigger for this sudden rush among PSU banks to come
clean, which earlier was restricted to a one quarter exercise just immediately after the
appointment of a new managing director, is a Reserve Bank of India directive asking banks to
classify visibly stressed assets as NPAs and set aside money to cover the risk of default. The
fallout of the directive, which followed an asset quality review by RBI on the earnings of PSU
banks, showed that state owned lenders have been sitting on a pile of troubled assets that they
have avoided categorizing as risky until now.

There is more pain to come, as Arundhati Bhattacharya, chairman of SBI warned in the latest
post results interaction with the media. We may see a similar amount of provisioning in the next
quarter (January March). There are accounts that may have been classified as NPAs in other
banks but not by us yet. So, these could happen in the next quarter, she said. Queries sent to the
SBI chair on the status of the banks estimated 39 borrowers having outstanding of over Rs.
5,000 crore each (as on March 31, 2015) went unanswered. RBI estimates peg the cumulative
outstanding amount on account of these 39 borrowers at Rs 4, 42,267 crore till end March 2015.
Even as the central bank has led the charge on cleaning up bank books, the RBI has been
somewhat indifferent on revealing the details of the big defaulters.
RBI data reporting system does not collate data on loans provided recovered or written off by
the PSBs to farmers and corporate houses Each bank has its board approved loan policy in
terms of RBI guidelines and accordingly the loans are provided by the banks. The borrowers
details are not disclosed as prescribed under Section 45E of the RBI Act, 1934, and the banking
laws, according to the finance ministry, which said this in response to a query on NPAs raised
during the winter session of Parliament.
The idea of naming big defaulters triggers sharp resistance from the government and the central
bank, who cite these provisions of the RBI Act to legitimately deny information. This notion was

challenged in 2011, when the then Central Information Commissioner (CIC), reacting to an
application filed by a Haryana based RTI activist, had clearly directed the RBI to reveal publicly
the names of the top 100 industrialists who had defaulted on loan repayments to PSBs.
The CIC held that disclosure of information about industrialists who are loan defaulters of the
country may put pressure on such persons to pay their dues and that revealing the names would
serve the object of reining in such defaulters, warning citizens about those who they should stay
away from in terms of investments and perhaps shaming such persons or entities.
The RBI, however, reacted to the CIC order by moving the Delhi High Court through a writ
petition seeking its quashing on grounds that it went against the cardinal common law principle
of bankers duty of confidentiality and that the CIC direction to disclose the details of the top
100 industrialists was against the basic tenets of banking.
The studied silence notwithstanding, the RBI does currently circulate a list of nonsuit filed
accounts of defaulters owing Rs 1 crore and above, besides that of willful defaulters with
outstandings of Rs 25 lakh and above, but these are only to lending institutions for their
confidential use. The latest list is understood to have some 150odd names, The RBI, according to
a senior bank official with one of the State Bank of India subsidiaries who has spoken about
earlier the central banks cloak of secrecy, maintains that this information on defaulters is held by
it in a fiduciary capacity on behalf of the banks. The official did not, however, respond to a
formal email sent by The Indian Express on the issue.
In response to an Indian Express RTI query seeking details of those whose bad debts of Rs 100
crore or more had been written off, the RBI said: The required information is not available with
us.
The RBIs stance has come in for heavy criticism in the Supreme Court in December 2015,
where the apex court ruled that the RBI and commercial banks cannot hide routine information,
such as the names of top defaulters, the losses suffered by banks and details of action taken
against erring banks, sought by the public under the Right to Information Act. The central bank

and commercial banks hitherto denied such information on the ground that it was information
held in a fiduciary capacity and could not be revealed to the public at large.
Experts concur that the RBI has a statutory duty to uphold the interest of the public at large, the
depositors, the countrys economy and the banking sector. Therefore the central bank ought to act
with transparency and not hide information that might embarrass individual banks.
An analysis of the information available with the RBI till 201213 also shows that between 2009
and 2013, both the advances by public sector banks to individuals and business entities as well as
their amount of bad debts written off doubled. From 0.33 per cent of total advances in 2009, bad
debts rose to 0.61 per cent in 2013. Bankwise breakup shows that SBI, Indias largest bank, is
way ahead of others in declaring loans as unrecoverable, with its bad debts shooting up almost
four times since 2013 from Rs 5,594 crore in 2013 to Rs 21,313 crore in 2015.
The series of disclosures following the RBIs fiat has prompted the government to establish six
new Debt Recovery Tribunals (DRT) at Chandigarh, Bengaluru, Ernakulum, Dehradun, Siliguri
and Hyderabad to speed up the recovery of bad loans of the banking sector. This, however, may
be less than adequate. According to Bhattacharya, one reason these accounts had to be classified
as NPAs was that the loan recovery process takes too long. Based on SBIs experience, resolution
through the DRTs sometimes takes as long as 60 months, she asserted at the SBI results briefing
on February 12.

NPA as on 31-3-2015

1. Combine Chart for all the banks:

2500000

2000000

1500000

Nationalised banks
SBI and associates
Private banks

1000000

500000

Foreign banks

2. Graph for SBI and Associates:

700000
600000

STATE BANK OF BIKANER &

JAIPUR

500000

STATE BANK OF HYDERABAD

400000

STATE BANK OF INDIA

300000

STATE BANK OF MYSORE

200000

STATE BANK OF PATIALA

100000

STATE BANK OF
TRAVANCORE

0
(1)

(2)

(3)

(4)

(5)

(6)

(7)

3. Status of Nationalized banks:

4. Status of Private sector banks:

5. Status of Foreign Banks: